Clarkson Lumber Company Experienced Significant Sales Growth

From 1993 through 1995, Clarkson Lumber Company experienced significant sales growth – 19.0% from 1993 to 1994 and 30.0% between 1994 and 1995. Profitability also increased, but not nearly at the same pace as sales revenue. Net income rose from $60,000 in 1993 to $68,000 in 1994 (a 13.3% increase), to $77,000 in 1995 (13.2% increase). This increase in sales and profitability demanded growth in working capital and fixed assets to finance the growth, creating a need for cash that outpaced free cash flow into the firm. Furthermore, Mr. Clarkson’s buyout payments to Mr. Holtz in 1995 and 1996 only added to the liquidity predicament. Thus, Clarkson was compelled to draw upon his line of credit with Suburban National Bank and begin relying heavily on trade credit, quickly maxing out his bank credit line by the end of 1995. The financial strength of Clarkson Lumber has deteriorated between 1993 and 1995. Clarkson had a free cash flow to the firm of +$2,000 in 1994, but that dropped to -$159,000 for 1995. EBITDA increased over the period, but not matching the pace of net debt increases; Clarkson’s leverage (Net Debt / EBITDA) was 1.21 in 1993, increasing to 2.31 and 2.95 in 1994 and 1995, respectively. First quarter 1996 statements annualized over the entire year projected leverage to increase to 4.94 by the end of 1996, assuming no credit line cap and no other changes. The trade discount of 2% provides a very attractive opportunity for Clarkson Lumber to dramatically increaseShow MoreRelatedClarkson Lumber Case Analysis Essay802 Words   |  4 PagesStatement of the Problem At first glance, Clarkson Lumber appears to be a healthy company. However, despite rapid growth and increasing sales Clarkson Lumber finds itself searching for additional funding to compensate for a shortage in cash to fund its expanding business. Clarkson Lumber is in this situation for a number of reasons. The companys inability to receive payments from customers in a timely manner created a severe impact in the companys cash flows. The age of account receivablesRead MoreClarkson Lumber2050 Words   |  9 Pages29, 1996 Clarkson Lumber Company After a rapid growth in its business during recent years, the Clarkson Lumber Company, in the spring of 1996, anticipated a further substantial increase in sales. Despite good profits, the company had experienced a shortage of cash and had found it necessary to increase its borrowing from the Suburban National Bank to $399,000 in the spring of 1996. The maximum loan that Suburban National would make to any one borrower was $400,000 and Clarkson had been ableRead MoreMarketing Principle Quiz20161 Words   |  81 Pageswell it made the soap and not on what customers wanted from a bar of soap. It had a _____ orientation. | | | | | Selected Answer: |   a.   production | Correct Answer: |   a.   production | Feedback: | The production orientation forces a company to build whatever it builds best, that is, whatever it has the experience and expertise in doing. | | | | |   Ã‚  Question 2 | 1 out of 1 points    | | Redefining the business mission of a mattress manufacturer as â€Å"a good night’s sleep,†Read MoreProject Mgmt296381 Words   |  1186 PagesMANAGERIAL PROCESS Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright  © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or